Tesla buys land for Shanghai factory

Tesla has secured the plot for its mega factory in Shanghai, local media is reporting (in Chinese). The US electric car maker and Shanghai Urban Planning and Land Resource Administration Bureau today signed the contract for land use right transfer.

Elon Musk’s EV company reached a preliminary agreement with the Shanghai government to build a factory capable of producing 500,000 vehicles a year. The new facility is expected to significantly boost Tesla’s production in China, the world’s largest electric car market. The company previously said the first vehicles would roll off the Shanghai production line two years after the construction of the new facility begins.

After registering a new company in Shanghai on May 10, which is owned by Tesla Motors HK, it took Tesla only another 3 months to secure a plot for its first factory outside of the US. While the price has not been confirmed, earlier this month Bloomberg reported that the auction price is around RMB 1 billion yuan ($145 million).

The company recently increased the registered capital for its China unit by almost 46-fold to RMB 4.7 billion in a bid to widened the business scope to include car parts and prepare to roll out its first products in China by 2020.

Unlike, other foreign automakers, Tesla has no production and no partnerships with local companies in the country. Exporting its vehicles to China means sky-high import taxes. In July, the EV maker was forced to raise its prices in China because of the ongoing US-China trade tension, the Chinese government raised the tariff on Tesla to 40%

Tesla is likely to face another difficulty in the Chinese market. During September, China’s car sales fell the most in nearly seven years leading to concerns that the world’s biggest auto market could contract for the first time in decades. Aside from the economic slowdown, deleveraging, and pollution issues have led to the 11.6 percent slump, according to the China Association of Automobile Manufacturers (CAAM).

The 864,885 square-meter (213.7 acre) property is located in the Shanghai Lingang Industrial Zone in Pudong New Area. With the government’s push, Lingang has become a popular spot for auto assembly and equipment plants. The Shanghai authorities recently opened up 26.1 km of public roads in Lingang area for testing smart connected vehicles.